How to Calculate Value Added Tax (VAT) in Dubai, UAE: A Comprehensive Guide by Adam Global

Introduction of VAT in UAE 

In the shimmering oasis of the United Arab Emirates (UAE), a new financial dawn emerged on January 1, 2018, with the introduction of Value Added Tax (VAT). This tax system, implemented at a standard rate of 5%, was a significant shift in the UAE’s fiscal policy, marking a new era in its economic landscape. But don’t worry, the team at Adam Global is here to help you navigate these shifting sands. 

When and How to Register for VAT in UAE, Dubai, and its Threshold Limit 

 VAT registration in the UAE is not a one-size-fits-all process. Businesses that exceed a turnover of AED 375,000 in 12 months are required to mandatory register for VAT. However, if your annual turnover is between AED 187,500 and AED 375,000, you have the option to register voluntarily. 

The registration process is quite straightforward. It involves filling out an online form on the Federal Tax Authority (FTA) website. But remember, the devil is in the details, and that’s where we come in. Our experts at Adam Global can guide you through the process, ensuring you don’t miss a beat. 

Let’s say you own a boutique clothing store in Dubai. In the last 12 months, your store generated AED 400,000 in revenue. Since this exceeds the mandatory registration threshold of AED 375,000, you are required to register for VAT within 30 days. If your store had made AED 200,000, you would not be required to register, but could choose to do so voluntarily. 

The Procedure and Timing for Filing VAT Returns 

Filing VAT returns in the UAE    requires precision, timing, and a keen understanding of the rules. VAT returns must be filed quarterly within 28 days from the end of the tax period. The process involves providing details of taxable supplies, output tax, input tax, and the tax due or repayable. It’s a bit like a financial ballet, and we at Adam Global are your choreographers. 

Imagine you run a restaurant in Abu Dhabi. Your quarterly revenue (excluding VAT) is AED 150,000 and you’ve incurred AED 20,000 in expenses (excluding VAT). The VAT you’ve collected from customers is AED 7,500 (5% of 150,000), and the VAT you’ve paid on business expenses is AED 1,000 (5% of 20,000). When filing your VAT return, you would report AED 7,500 as output tax and AED 1,000 as input tax. The difference, AED 6,500, is the amount you would need to remit to the FTA. 

Exempt Supplies v/s Zero Rated Supplies 

In the VAT world, not all supplies are created equal. Some are exempt, while others are zero-rated. Exempt supplies, such as certain financial services and residential properties, are not subject to VAT. On the other hand, zero-rated supplies, like exports and international transportation, are technically subject to VAT but at a rate of 0%. It’s a bit like being invited to a party but not having to bring a gift. 

Consider a local bank in Dubai. Most of their financial services, such as providing loans or credit, are exempt from VAT. This means they don’t charge VAT to their customers for these services, and they can’t claim any VAT paid on their costs related to these services. 

On the other hand, let’s say you run a company exporting electronics to other countries. Your exports are zero-rated. This means you don’t charge VAT to your customers, but unlike the bank, you can still reclaim the VAT you’ve paid on your business costs. 

Benefits of Entities in Designated Zones 

Designated zones in the UAE are a bit like VIP lounges at the airport. They offer special benefits and privileges. Entities in these zones are treated as outside the UAE for VAT purposes. However, not all free zones are designated zones. It’s a bit like all squares are rectangles, but not all rectangles are squares. 

Suppose you operate a trading company in the Jebel Ali Free Zone, which is a designated zone. You import goods into the zone, store them, and then re-export them to other countries. These operations within the designated zone are outside the scope of UAE VAT, so you don’t charge your customers VAT, but you can still reclaim the VAT you’ve paid on your business costs. 

How to Calculate VAT in UAE 

Calculating VAT in the UAE is as easy as pie, or should we say, a piece of baklava. The standard rate is 5%. So, if you’re selling goods worth AED 100, the VAT would be AED 5. But if you’re exporting from a designated zone, you can enjoy your baklava without the added tax. 

Procedure to Get VAT Refunds for Tax Registered Businesses 

Getting a VAT refund in the UAE is like finding an oasis in the desert. Registered businesses can claim VAT refunds through the FTA portal by submitting a VAT return application form. The form should detail the input tax (VAT paid on purchases) and output tax (VAT charged on supplies). If the input tax exceeds the output tax, voila! You’re eligible for a refund. 

What is Exclusive of VAT? 

When prices are quoted exclusive of VAT, it’s like buying a ticket to a concert and then finding out there’s a booking fee. The VAT is added to the original price, increasing the total amount you must pay. 

What is Inclusive of VAT? 

 On the other hand, when prices are inclusive of VAT, it’s like getting a meal with drinks included. The VAT is already included in the price, so there are no nasty surprises when the bill comes. 

VAT Calculation Explained with an Example 

Let’s say you’re buying a magic carpet in Dubai for AED 1,000. If the price is exclusive of VAT, you’ll need to add 5%, making the total AED 1,050. But if the price is inclusive of VAT, the original price is AED 952.38, with AED 47.62 as the VAT. It’s like a magic trick, but with numbers. 

Cost of Registering for VAT Services in UAE 

 Registering for VAT in the UAE is not just about the paperwork; it also involves a cost. The overall cost can vary depending on the complexity of your business activities and the resources required to ensure compliance. But remember, with Adam Global, you’re not just paying for a service; you’re investing in peace of mind. 

Why You Should Choose Adam Global Experts for Registering VAT 

 Choosing Adam Global for your VAT registration is like choosing a seasoned guide for your desert journey. Our team of experts will navigate the dunes of tax legislation, ensuring you reach your destination without any hiccups. Plus, we have a great sense of humour. Who said the tax must be boring? 

Conclusion 

 Navigating the VAT landscape in the UAE can seem as daunting as crossing the Rub’ al Khali, the largest sand desert in the world. But with the right guide, it can be a journey of discovery and growth. At Adam Global, we’re not just tax experts; we’re your partners in this journey. So, why not join us for a cup of Arabic coffee and let’s start your VAT journey together. 

Remember, in the world of VAT, the only constant is change. But with Adam Global, you’ll always be one step ahead. Because when it comes to VAT in the UAE, we don’t just know the way; we lead the way. 

Please note that this blog post is intended to provide a general overview of VAT in the UAE. For specific advice tailored to your business, please consult with our professional tax advisors at Adam Global. 

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